Oil Prices Rise on Fears of Supply Disruption Over Ukraine

Men stand guard at the local government headquarters in Simferopol, Crimea on Sunday.

Reuters

Oil prices climbed to their highest this year on worries that tensions between Russia and Ukraine may spiral out of control and hit energy supplies in Europe.

The tensions in Eastern Europe add to an already strong market. Demand for oil has been high this year because of a cold winter in the U.S. and a surprise jump in Chinese oil imports.

So far, the standoff in Ukraine hasn’t affected the physical supply of oil, but will add to worries over supplies from Russia, one of the world’s largest oil and gas producers, said Victor Shum, vice president at IHS Energy.

Similar jumps in prices were seen over the conflict in Syria last year, with the so-called geopolitical risk premium then rising to as much as $15 a barrel when tensions were at their peak.

Nymex crude rose sharply in early Asian morning trade but has pared gains and is up $1.19 at $103.78 a barrel. Brent crude is up $1.39 at $110.46 a barrel. Adding to the price rise on Monday, automatic orders called stop-loss buying have been triggered, said Ken Hasegawa, commodities sales manager at Tokyo-based Newedge Japan said.

“For now oil prices have gained slightly but after London markets open it is possible that oil prices go up further. The price of West Texas Intermediate oil may touch $105 in the short term,” he said.

Mr. Hasegawa also said Brent’s premium over Nymex WTI is likely to remain narrow as both oil benchmarks remain supported in the short term. The Brent-WTI spead is currently at $6.69 a barrel.

The price of Nymex crude oil has risen for seven consecutive weeks and gained $5.10 a barrel in February, while Brent crude gained $2.67 last month and has risen for four of the past five months.

Ukraine is a major transit country for Russian oil and gas supply to eastern Europe, and the region is currently well-stocked with gas inventories, although the oil supply is a slightly trickier situation, said Johannes Benigni, director at JBC Asia.

“Overall, I don’t think it is the intention of the Russians to kill themselves by cutting their sales into the market and right now it is more noise than anything else,” he said, referring to the standoff between Russian and Ukrainian troops.